February 2012, Week 3


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Sun, 19 Feb 2012 22:50:50 -0500
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Trickle-Down in the Other `Down Under'
By Sam Pizzigati
Too Much
February 12, 2012

Where in the developed world do rich people pay the
least in taxes? To Americans these days, this question
would seem to have an obvious answer. The tax laws New
Zealand has locked in place almost read like a "tax
reform" wish list - on steroids - from GOP Presidential

The most rich people-friendly nation at tax time simply
must be the United States, a land where the mega rich
pay taxes at lower rates than their secretaries and a
White House hopeful with a quarter-billion-dollar
fortune pays only 13.9 percent of his annual take-home
in federal income tax.

But that obvious answer would be wrong. The rich people-
friendliest developed nation in the world just happens
to be New Zealand.

So show the latest data from the Organization for
Economic Co-operation and Development, the industrial
world's top economic researcher. And so says Rob
Salmond, a New Zealand-born political scientist now at
the University of Michigan.

"We charge less tax than any comparable country on high
incomes, dividends, and capital gains," notes Salmond.

The tax laws that New Zealand has locked in place over
the last quarter-century almost read like a "tax reform"
wish list - on steroids - from Mitt Romney and his
rivals for the GOP Presidential nomination.

Abolish taxes on the estates rich people leave behind at
death, as former governor Romney and all his rivals
propose? The tax law in New Zealand exempts all huge
private fortunes from any "death taxes." Rich people-
friendly tax policies have helped turn New Zealand into
an economic deadend for all but the high-income set.

Drop the tax rate on capital gains below the current 15
percent, as Rick Santorum advises, or simply eliminate
taxes altogether, as Newt Gingrich advocates, on asset
trade profits? New Zealand has no tax levy on capital
gains income.

Tax no dollar of ordinary income at more than 35
percent, the rate the Bush tax cuts fixed in the U.S.
tax code back in 2001? All the GOP Presidential
candidates are vowing they'll extend that 35 percent
Bush-era rate. In New Zealand, no dollar of millionaire
income faces a tax rate higher than 33 percent.

Cutting taxes on America's most wealthy, our GOP
Presidential candidates all claim, would bring the
United States a broad new prosperity from sea to shining
sea. New Zealand's recent tax history offers a real-life
test of that claim.

New Zealand's 33 percent top tax rate has been on the
books for most of the years since the mid 1980s, as have
the rest of New Zealand's exceedingly rich people-
friendly tax policies. So how are all these policies
working out?

Not particularly well. Rich people-friendly tax policies
in New Zealand have helped turn a society that worked -
and worked admirably - for average New Zealanders into
an economic deadend for all but the high-income set.

This bleak transformation hit the headlines last week,
and dramatically so. Over six straight days, New
Zealand's largest-circulation daily newspaper showcased
just how unequal New Zealand has become - and just how
brutally that inequality has impacted daily life in
Auckland, the nation's largest metro area. Auckland's
super rich have built sprawling homes on a scale the
city had never dreamed of in the 1980s.

The onset of Auckland's inequality, the New Zealand
Herald series details, has been incredibly sudden and

"Auckland has changed from an equal city to an unequal
one in less than a generation," notes Herald reporter
Simon Collins.

Indeed, back in 1986 Auckland ranked as one of the most
equal cities in the world. Over half the metro area's
census tracts - 52 percent - had median incomes within
10 percent of the regional median.

By the 2006 census, this "bunching" around the middle
had largely evaporated. Only 26 percent of Auckland
census tracts now have incomes that fall within 10
percent of the region's median. The number of Auckland
tracts with medians more than 30 percent above the metro
median has more than tripled.

What changes has this immense income shift brought? Some
changes have become exceptionally visible. Auckland's
super rich, says the Herald, "have built sprawling homes
on a scale the city had never dreamed of in the 1980s."

Other visible changes have come at the bottom. Food
charities - largely "unheard of" in 1986 - have become a
necessary fact of everyday Auckland life. Real estate
speculation has left much of Auckland's housing
unaffordable for working families - and forced
widespread overcrowding.

"Even for families who are not considered poor," the
Herald observes, "parents are having to do without to
make sure their children are fed and clothed."

In 1986, New Zealand's top 1 percent households were
grabbing 5 percent of the nation's income. That share
has since doubled.

New Zealand's top 1 percenters today do, to be sure, get
a smaller share of national income than top 1 percenters
in the United States. But New Zealand's inequality may
be, if anything, more striking, since New Zealand -
before the current inequality surge began - had been a
more equal place.

In fact, the New Zealand that entered the 1980s rated as
something of a global middle class haven, full of
policies that helped poorer people gain middle class
status. Those policies have largely gone by the boards
as income - and power - have concentrated at New
Zealand's economic summit.

One example: Between 1946 and 1985, New Zealand's
"family benefit" funneled a weekly allowance to the
family of every New Zealand child. Young parents could
"cash in" this benefit for a first-home downpayment.
Lawmakers abolished the overall universal family benefit
in 1991.

The next year, lawmakers turned around and gave affluent
households a huge new tax break, the ability to deduct
off their regular income any "losses" they suffer when
rents from the properties they own don't equal their
mortgage payments on those properties.

This new tax subsidy gave the affluent a huge incentive
to go out and borrow to buy up homes for renting out. If
their rental income topped the mortgage outlay due, they
made money. If the rents didn't cover the mortgage, they
had a tax break. Either way, they won - and they won
even more when they sold their rental properties and
didn't face any capital gains tax on the profits.

The resulting real estate speculating left much of
Auckland's housing unaffordable for working families -
and forced widespread housing overcrowding.

The overcrowding, in turn, has exploded hospital
admittances for infectious diseases, the New Zealand
Herald notes, "as extended families unable to afford
rising Auckland house prices and rents double up in
houses and garages."

Zealand is suffering educationally as well. The latest
education data indicate that no developed country's
schools now do a worse job than New Zealand "at helping
students overcome the disadvantages of being born into
poor families."

The reason? Auckland schools are struggling to serve a
vastly expanded poverty population. Last winter, one
local principal told the New Zealand Herald, many
students "came to school in thin shirts and shorts
without shoes or sweaters."

The purchases that hard-pressed New Zealand families can
afford, meanwhile, come encumbered with a heavy sales
tax burden. In the developed world as a whole, sales
taxes cover 59 percent of potential consumer purchases.
In New Zealand sales tax impacts 98 percent of what
consumers purchase.

What can New Zealand do to regain a more equitable
quality of life? One unusual suggestion came last month
in an essay contest sponsored by civic action group in
the community of Whangarei. Local resident Trisha Fisk
won a $1,000 prize for an essay that proposed a "maximum

"Society has developed a system where a minimum wage has
been legislated for," Fisk wrote. "Now why can't our
system also legislate for a maximum wage?"

"Does the multi million dollar CEO really earn his keep
so many many times more than the worker who actually
produces the goods?" Fisk asks. "Would he be worth
bobsy-die if the individuals at the bottom of the feed
chain didn't do their job?"

"Bobsy-die"? That slang might not be familiar to most
Americans. New Zealand's economic predicament, on the
other hand, may well become our future.

Sam Pizzigati edits Too Much, the online weekly on
excess and inequality published by the Institute for
Policy Studies. His new book, The Rich Don't Always Win:
The forgotten triumph over plutocracy, 1900-1970, that
created the classic American middle class (Seven Stories
Press), will appear after the 2012 elections. Read the
current Too Much issue or sign up at Inequality.Org to
receive Too Much in your email inbox.


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